Explained: Clause 19
In the beginning, in 2020, COVID-19 was neither under the control of any party nor was a crisis that a party could foresee before signing a contract, especially for the ones who undertake large-budgeted responsibilities. It was not an event that a contractual party may reasonably avoid. Hence, COVID-19-related defaults or delays became an event, which cannot be attributed to any party under Article 19 of FIDIC 1999 although such events were often causing serious failures in many projects all around the world. Therefore, COVID-19 was started to be considered a force majeure event, and accordingly the parties started to send notices to each other. However, while making this evaluation, it is also necessary to pay attention to the applicable laws and local regulations of the designated country, all of which apply to these contracts, as some national laws may not define this condition as a force majeure. In this regard, the first part of Clause 19 is required to be reviewed.
Clause 19 handles two different events: (i) Force Majeure; and (ii) release from performance under the law. Force Majeure is often defined sensu stricto under the laws of many countries; however, within the FIDIC forms of contract, it has a much broader meaning. The terminology used by FIDIC has therefore sometimes been criticized as being misleading.
The phrase ‘force majeure’ is new to FIDIC 1999. In the FIDIC 4thedition, there was a reference to “Special Risks” at clause 65, which then cross-referred to “Employer Risk” at clause 20.4 in the current version.
Before diving into more detail, it is advised to note that reference to Clause 19 is found in the following clauses in FIDIC 1999; (i) Sub-Clause 1.1.6.4 "Definitions – Force majeure", (ii) Sub-Clause 14.2 "Advance Payment", (iii) Sub-Clause 15.5 "Employer’s Entitlement to Termination", (iv) Sub-Clause 16.3 "Cessation of Work and Removal of Contractor’s Equipment", and (v) Sub-Clause 16.4 "Payment of Termination."
For instance, the definition under the Quebec Civil Code (Article 1470) is as follows:
“Force Majeure is an unforeseeable and irresistible event, including external causes with the same characteristics.”
Under German Law, the German Supreme Court has described Force Majeure (Höhere Gewalt) as the following:
“an extraordinary event which affects the business from the outside, which is unforeseeable, which cannot be prevented even by applying the utmost care without endangering the economic success of the enterprise, and which also has not to be taken into account and to be put-up with by the Contractor due to its frequent occurrence.”
However, the FIDIC definition is very close to that provided in “Principles of International Contracts” published in 1994 by the International Institute for the Unification of private law (UNIDROIT) (Article 7.1.7).
“Non-performance by a party is excused if that party proves that the non-performance was due to an impediment beyond its control and that it could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences”
The term circumstance gives rise to some interesting issues. It reflects part of the meaning of impediment under the UNIDROIT article quoted above. Under previous FIDIC contracts, the list of Employer’s risks did not include anything which might have been regarded as a circumstance rather than an event. A circumstance is a state of affairs. Thus for example physical conditions would in many cases be a circumstance rather than an event so, although they are also dealt with under Sub-Clause 4.12 (Unforeseeable Physical Conditions), they may also be a circumstance under Sub-Clause 19.1 which may give rise to the right to claim for Force Majeure if the other conditions under the Clause can be fulfilled.
This opens the possibility that an event about which a Contractor is excluded from claiming under Sub-Clause 4.12 might give rise to a claim under Sub-Clause 19.1 (or indeed as will be discussed below under Sub-Clause 19.7). The most obvious example is climatic conditions which are not claimable at all under Sub-Clause 4.12. As is explained in the discussion under Sub-Clause 4.12, climatic conditions do not mean weather but the overall conditions imposed by the climate at the site of the Works. If one described the climatic conditions in a particular country one might say that there is a hot sunny season which runs from February to October and then a rainy season from November to January. This says nothing about what the weather might be on a particular day. It would be possible for it to rain in April without this being a difference in climate. However, if, contrary to the normal expectations of the climate in this country the entire month of April turned out to be rainy and this disrupted the Works, one could say that in this particular year the climatic conditions had changed. That would be an exceptional event or circumstance and might well be capable of being considered Force Majeure. On the other hand, this unforeseeable change to the climate would not be claimable under Sub-Clause 4.12.
If a Contractor unexpectedly encounters rock this might also be a circumstance beyond his control. If the rock was unforeseeable a claim would be best made under Sub-Clause
4.12 because the Contractor has a right to an extension of time and Costs and in some circumstances profit. However, if the presence of rock was foreseeable a claim under Sub-Clause 4.12 would not succeed and the right under Sub-Clause 19.1 to an extension of time on the basis that the presence of the rock was an exceptional circumstance outside the Contractor’s control is far better than the alternative of no compensation at all.
It is of course often possible to argue that one of the events which, in normal circumstances, might be considered Force Majeure does not give rise to Force Majeure because it is not exceptional. For example between April 2003 and July 2008, 444 people described as “contractors” were killed by bombs or firearms in Iraq (http://icasualties.org/oif/Contractors.aspx). No doubt the same events also caused damage to the contractor’s equipment and quite possibly affected the carrying on of the works. However, with such a volume of casualties, it becomes difficult to argue that bombing or firearms incidents can be treated as Force Majeure in this environment. They are far from exceptional. Similar arguments may be made concerning outbreaks of the Ebola virus, especially where outbreaks have previously occurred within a particular country.
There is also no test of foreseeability under Sub-Clause 19.1. Force Majeure is claimable even if it is not Unforeseeable. However, a condition will not give rise to an entitlement under Sub-Clause 4.12 if it is not Unforeseeable as defined in Sub-Clause 1.1.6.8:
“not reasonably foreseeable and against which adequate preventive precautions could not reasonably be taken by an experienced contractor by the date for submission of the Tender.”
The experienced contractor is expected to have the foresight and take reasonable preventive precautions and cannot make a claim under Sub-Clause 4.12 if he has not done so.
Under Sub-Clause 19.1, however, the exceptional event or circumstance need only be something “which such Party could not reasonably have provided against before entering into the Contract.”
This is only a part of the foreseeability test under Sub-Clauses 1.1.6.8 and 4.12. It is approximately the same as against which adequate preventive precautions could not reasonably be taken but allows an event to be treated as Force Majeure when it could have been foreseen but was not. If the Contractor did not actually foresee the event or circumstance – though he should have under the definition in Sub-Clause 1.1.6.8 – he could not have taken any precautions and it is, therefore, possible that the Force Majeure provision might apply even though he ought to have foreseen the event or circumstance.
Once the event or circumstance passes the exceptionality test it must then pass the further four tests set out in Sub-Clause 19.1. (There is a further requirement under Sub-Clause 19.2 that notice be given before any event or circumstance be treated as Force Majeure and this will be dealt with below).
These four tests are not alternatives – in other words, all must be satisfied before an event or circumstance will be treated as Force Majeure.
According to Sub-Clause 19.1, The four tests are as follows:
(a) the event or circumstance must be “beyond a Party’s control.”
It should be noted that the Sub-Clause does not say beyond the Party’s control and it may be arguable that an event which might have been controllable by the other Party is not to be treated as Force Majeure. It would be a strange interpretation of the Sub-Clause to conclude that if an event was within the control of the other Party it would not be treated as Force Majeure for the benefit of the Party affected, but the interpretation is nevertheless a possible one and in one circumstance is expressly recognised in test (d). Test (d) excludes events which are not substantially attributable to the other Party, so it is already recognised that, although an event may be outside the control of the Party claiming, it will not be treated as Force Majeure if the other Party has caused the event. Test (d) and the meaning of “attributable” will be further explained below. However test (b) goes on to refer to the event not being one which “such party” could have provided against – which tends to suggest that the drafting intends that “a Party” really means “the Party”.
Whether or not something is beyond a Party’s control will be a matter of fact in the particular circumstances. However “beyond control” refers to the event or circumstance, not to its consequences. Even though you can put up an umbrella when it starts to rain and prevent yourself from getting wet, the rainstorm itself is beyond your control. Unlike the later tests, the Party is only likely to fail the test of “beyond control” when the event or circumstance is one with which it has some connection.
(b) Which such Party could not reasonably have provided against before entering into the Contract.
Clearly, a Party could not be reasonably expected to provide against something happening unless it could anticipate it. However, as noted above, this is not the same test as that for foreseeability under Sub-Clause 1.1.6.8. It follows that if, in fact, the Party did not foresee the event or circumstance before entering into the Contract it will meet this test even though, with a bit more foresight it ought to have foreseen it. Even though it may have foreseen the exceptional event or circumstance it is still possible that the event or circumstance could constitute force majeure, so long as it could not reasonably be provided against before entering the Contract. Thus an event or circumstance which occurs after the entering of the Contract may be an event of Force Majeure even if it was one which the party could have easily provided against (always assuming that by the time it occurred it was beyond that Party’s control and could not be reasonably avoided or overcome).
(c) Which, having arisen, such Party could not reasonably have avoided or overcome.
There are two tests here – the exceptional event or circumstance must not have been capable or being avoided or overcome. It is difficult to see how an event or circumstance itself can be avoided or overcome. By definition, it must have already occurred for the tests to be considered so it will be too late to avoid or overcome it. What must be meant is that the effects of the event or circumstance cannot be avoided or overcome. In this context, avoiding must mean finding a way to continue the Works and not be affected by the exceptional event or circumstance. Overcome must mean the taking of measures which eliminate the effects of the exceptional event or circumstance. It may not be possible entirely to avoid or overcome the effects but only to avoid or overcome them in part. In that case, only that part of the effect that could not be avoided or overcome would be treated as Force Majeure.
An example might be where a flood on site has destroyed a partly completed section of the Works. The Contractor may be able to avoid or overcome the delay by accelerating work elsewhere on the site during the clean-up and by later accelerating work on the damaged area. The effect of the event or circumstance can be avoided or overcome, though nothing could have been done about the event itself. Whether the event will be treated as Force Majeure will depend on whether the amount of work necessary to avoid or overcome the effect is reasonable. This obligation may be compared to one of using ‘reasonable endeavours’ to avoid loss. A party who is required to act under (c) “is not required to sacrifice its own commercial interests” – see Yewbelle Ltd v London Green Developments Ltd & Anor approving the first instance statement of Lewison J.
It is clear that measures to avoid or overcome the effects of the Force Majeure must be capable of being entirely effective in order for the event not to be treated as Force Majeure. If this were not the case Sub-Clause 19.3 (Duty to Minimise Delay) would not be necessary.
(b) Which is not substantially attributable to the other Party.
This is an important and often overlooked qualification, particularly significant where the other Party is, for instance, a State Ministry. It is possible that some instances of what would normally be called Force Majeure will not be Force Majeure if attributable to the other Party. To take one example, a Contractor, in contract with a State would not be able to treat the outbreak of war as Force Majeure if the war had been started by the State party – an exception which the State party will be highly motivated to invoke! Similarly, action by the Contractor which prevents the Employer or Engineer from having access to the Site or using its equipment could not be treated by the Employer as Force Majeure.
Having set out the four above tests, the Sub-Clause goes on to list what Force Majeure may be so long as the tests are satisfied. This is an odd provision because, while the list is stated not to be exclusive (“may include but is not limited to”) it incorporates some exceptions to the definition. Thus the list does not make any particular event or circumstance Force Majeure but it does set out the only two examples of what cannot be Force Majeure even though all other tests have been met. Thus under item (iii) riots, commotions, disorders,4 strikes and lockouts which may otherwise constitute Force Majeure will not so constitute it if they involve the Contractor’s Employees and under item (iv) munitions of war, explosive materials, ionising radiation or contamination by radio-activity are Force Majeure (despite the fact that only the last can be described as an event or circumstance) unless they are attributable to the Contractor’s use of such materials. The consequence is that anything at all may be Force Majeure except these two, contractor-caused types of events or circumstances.
The issue of a force majeure event caused by a Contractor’s ex-employees was recently considered in the case of Rumdel Cape and Ors v South African National Roads Agency Soc Ltd. In this case the Contractor asserted that the works had stopped because the labour force which it was required to use was militant, unproductive and prone to acts of violence and intimidation with high levels of absenteeism and sick leave. The labour force was dismissed by the Contractor which resulted in riots and the death of a security guard. The Contractor argued that this was a force majeure event. The court held that the force majeure provisions of the contract did not apply because the labour force was employed by one of the parties. The court thereafter held that the Contractor had failed to prove that it was either impossible or unlawful for it to fulfil its contractual obligations and therefore there was no question of the provisions of Clause 19.7 being applicable.
Although the list in Sub-Clause 19.1 is described there as being of events or circumstances, item (iv) lists three materials and one potential event or circumstance. Item (iv) refers to munitions of war, explosive materials and ionizing radiation each of which might, if misused, cause an event or circumstance but none of which are such an event or circumstance. It is not clear whether an event or circumstance arising from the misuse of one of these items will therefore be treated as a listed Force Majeure or a Force Majeure under the general definition. This has significant effects when the Contractor’s rights to compensation are considered, because, while any Force Majeure can give an entitlement to an extension of time under Sub-Clause 19.4, only listed events can give rise to a right to Cost.
To be continued…
Please note that this content is not legal advice. One should always consult a qualified lawyer with regard to a particular issue or problem that s/he has. Feel free to contact us if you think that you need legal assistance.
References:
1- FIDIC 1999